Godawari Power & Ispat (NSE:GPIL) Has A Pretty Healthy Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Godawari Power & Ispat Limited (NSE:GPIL) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Godawari Power & Ispat's Debt?

As you can see below, at the end of March 2025, Godawari Power & Ispat had ₹3.09b of debt, up from ₹516.3m a year ago. Click the image for more detail. However, it does have ₹6.94b in cash offsetting this, leading to net cash of ₹3.86b.

How Strong Is Godawari Power & Ispat's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Godawari Power & Ispat had liabilities of ₹9.38b due within 12 months and liabilities of ₹2.82b due beyond that. Offsetting this, it had ₹6.94b in cash and ₹3.03b in receivables that were due within 12 months. So its liabilities total ₹2.23b more than the combination of its cash and short-term receivables.

This state of affairs indicates that Godawari Power & Ispat's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₹114.2b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Godawari Power & Ispat boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Godawari Power & Ispat

On the other hand, Godawari Power & Ispat's EBIT dived 13%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Godawari Power & Ispat can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Godawari Power & Ispat may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Godawari Power & Ispat's free cash flow amounted to 46% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

We could understand if investors are concerned about Godawari Power & Ispat's liabilities, but we can be reassured by the fact it has has net cash of ₹3.86b. So we are not troubled with Godawari Power & Ispat's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Godawari Power & Ispat that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.